China’s Meta deal crackdown is a wake-up call for AI startups trying to ‘Singapore wash’

In a significant move, China has halted U.S. tech giant Meta's $2 billion acquisition of AI startup Manus, a decision that analysts view as a stern warning for tech entrepreneurs. Duncan Clark, an early advisor to Alibaba and chairman of BDA China, remarked, "After Manusgate, founders will understand that if you start in China, your operations must remain in China." He noted that while the deal had already faced troubles, this latest development is among the most severe outcomes predicted. The timing of this decision is particularly striking, coinciding with Meta's upcoming earnings release and just weeks before a scheduled visit from U.S. President Donald Trump to Beijing, where trade and investment discussions are on the agenda. This situation poses direct implications for how businesses and investors navigate the ongoing U.S.-China tech rivalry, especially regarding data, talent, and intellectual property concerns. Chris Pereira, president and CEO of iMpact, emphasized the ramifications for Chinese AI startups and U.S. investors, stating, "The key takeaway is that simply incorporating in Singapore does not shield a deal from Chinese regulatory scrutiny." He elaborated that the competition between the U.S. and China has now extended to the realm of talent acquisition. Manus, which has Chinese origins, moved its base to Singapore prior to Meta's acquisition announcement in December. This relocation trend, referred to as "Singapore washing," has been adopted by other China-affiliated tech firms, including Shein, as they seek to minimize their Chinese presence amidst increasing scrutiny from both Washington and Beijing. Chinese authorities recently demanded the parties involved in the transaction to withdraw, following a probe initiated months earlier. The exact process for unwinding the deal remains unclear, but analysts suggest that this action could signal to founders the risks associated with relocating sensitive technology overseas. Winston Ma, an adjunct professor at NYU School of Law, highlighted the complexities involved, stating that China is primarily concerned about the transfer of strategically significant technologies, alongside the data and talent that accompany them. "Reversing a data transaction is far more intricate than returning physical goods," he noted. A Meta spokesperson asserted the company's compliance with applicable laws and expressed an expectation for an appropriate resolution to the ongoing inquiry. Manus has not yet responded to requests for comments. Despite the challenges posed by this situation, Gary Dvorchak, managing director at Blueshirt Group, suggested that China lacks leverage over Meta, as the company's social media platforms are inaccessible within China. He pointed out that Meta generates negligible revenue in China compared to its operations in other regions, particularly Europe. The decision to block the acquisition marks a notable application of foreign investment security review measures introduced in late 2020, reflecting heightened national security concerns. These regulations require companies to seek approval for deals that could impact national security before proceeding with foreign investments in mainland China. Reports indicate that the scrutiny on the deal began shortly after its announcement. The Chinese state-run tabloid Global Times emphasized that the core issue lies not in the company's registration or location but in its connections to Chinese technology, talent, and data — and the potential risks these pose to China's industrial security. With the backdrop of heightened U.S. restrictions on chip exports to China, the tech landscape is evolving rapidly. As China strives for technological self-sufficiency, recent innovations like DeepSeek have garnered national pride for not relying on foreign-trained talent. This landscape is further complicated by Manus's restructuring as a Singapore-based entity, which was highlighted by Beijing's municipal government as a local creation. As China progresses with its five-year development plan aimed at bolstering its tech ambitions, the Manus case could not only deepen the divide within the AI ecosystem between the U.S. and China but also deter overseas AI professionals from returning to China. According to Dan Wang from Eurasia Group, the implications of this incident are profound and far-reaching.